Mergers and Acquisitions

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Kunal Makwana (Querist)
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27 November 2010 Hello Experts,

I am asking a question relating to our potential JV with a foreign company.

It is actually going to be an acquisition as the foreign company will have more than 50% stake in the JV company.

I need to know if there will be an attraction of Capital Gains Tax once the JV company (which will have more than 50% holding from a foreign person/company and the rest by Indian company/person) is going to be merged with the Indian company with whom it is entering into a JV agreement? If yes, how much would it be?

I hope the experts in this forum shall be able to provide me an answer.

Regards

Parveen Bansal

Parveen Bansal (Expert)
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28 November 2010 Foreign promoter as well Indian promoters would be required to sell their equity to give stake to the New promoter, who will hold more than 50% of the equity in your company. Foreign promoter and Indian promoter will be required to pay for tax on capital gain.

Kunal Makwana

Kunal Makwana (Querist)
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28 November 2010 Thank you Parveen Bansal.

I would like to add a few more info on the above subject. I think there is some mis guided info.

In my question above, The Indian Promoters are us only, and the new JV will be a company in which we (Indian promoters) and the foreign company will have shares.

Let me give you an example.

Key:
Indian Promoter : Company I
Foreign Promoter : Company F
New JV Company : Company JV

Company I is registered under ROC and Company F is a foreign company. Both companies decide to form a new firm called "Company JV" and registered in ROC. The Company JV will have shareholding pattern as follows,

Company JV = 60% Company F and 40% Company I.

Company I is already running Business having Fixed Assets. Company F wants to build a new unit at the existing place of Business on Company I's premises and start activities.

Now, can Company I get 'merged' with company JV? or is it like company JV 'acquiring' company I?

In either of the cases, are Capital Gains tax recorded? If yes, who is liable to pay? Company JV or Company I or Company F?

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CA. BHAVIK DILIPBHAI MEHTA

CA. BHAVIK DILIPBHAI MEHTA (Expert)
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28 November 2010 As per section 2(47), any transfer in scheme of amalgamation of shares held in an Indian Company by the amalgamating foreign company to the amalgamated foreign company if
at least 25% of shareholders of amalgamating foreign company continue to remain the shareholder of the amalgamated foreign company and
such transfer does not attract capital gains tax in the country in which the amalgamating company is incorporate.

Two points are very important for your answer:
Is the foreign company incorporated with the country with whom India has double taxation avoidance agreement & secondly the joint venture agreement in form of a foreign company.

However I would still suggest please consult the a Chartered Accountant in person so that he can verify the facts & guide you properly.

Kunal Makwana

Kunal Makwana (Querist)
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28 November 2010 Dear Bhavikbhai,

Thank you very much for your insight. I shall surely get in touch with our C.A. in person and get further information from him.

Thank you all for resolving my queries.

regards

Parveen Bansal

Parveen Bansal (Expert)
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29 November 2010 There is a mismatch between what you have described in the clarification and what you plan to do and achieve.

The transaction needs to be understood, discussed and structured with an objective of minimum tax outflows , balanced control between promoters on omplementation

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